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Working Paper
Inflation Expectations and Monetary Policy Design: Evidence from the Laboratory
Using laboratory experiments within a New Keynesian framework, we explore the interaction between the formation of inflation expectations and monetary policy design. The central question in this paper is how to design monetary policy when expectations formation is not perfectly rational. Instrumental rules that use actual rather than forecasted inflation produce lower inflation variability and reduce expectational cycles. A forward-looking Taylor rule where a reaction coefficient equals 4 produces lower inflation variability than rules with reaction coefficients of 1.5 and 1.35. Inflation ...
Report
Informational contagion in the laboratory
We study the informational channel of financial contagion in the laboratory. In our experiment, two markets with correlated fundamentals open sequentially. In both markets, subjects receive private information. Subjects in the market opening second also observe the history of trades and prices in the first market. We find that although in both markets private information is only imperfectly aggregated, subjects are able to make correct inferences based on the public information coming from the market that opens first. As a result, we observe financial contagion in the laboratory: Indeed, the ...
Discussion Paper
A “Reference Price Auction” to Buy or Sell Different Assets Simultaneously
In finance, auctions are often conducted to buy or sell simultaneously various assets with very different characteristics. These auctions raise a number of challenges that cannot always be addressed with standard auction designs. In this post, I discuss an alternative design—the “reference price auction”—and present evidence that it may dominate other methods often implemented in practice.